Why is economics relevant?Identify and explain the three fundamental questions in economics.What is the difference between factor of production and factor price?

Chapter #1: The Economic Problem (50–points)
Chapter #2: Demand and Supply: An Introduction (50–points)
Total Marks: 100 points

 

Chapter #1: (50–points)
1. Why is economics relevant? (5–points)

2. Identify and explain the three fundamental questions in economics. (5–points)

3. What is the difference between factor of production and factor price? Give an example of each. (5–points)

4. Choice implies opportunity cost. Explain (5–points)

5. Scarcity implies choice. Explain (5–points)

6. Tigris produces only two products: tennis balls and tennis racquets. Each worker comes with a fixed quantity of materials and capital. The economy’s total labour force is fixed at 100 workers. The following table indicates the amount of balls and racquets that can be produced daily with various quantities of labour: (25–points)

Chapter #2: (50–points)

1. Why is the demand curve downward sloping? Explain. (5–points)

2. Demonstrate graphically and explain verbally the difference between an increase in the quantity demanded and an increase in demand. Describe what might have caused each to occur. (15–points)

3. Your boss told you that a decrease in price would increase demand. Why is your boss wrong? (5–points)

4. Briefly explain the six determinants of market supply. (5–points)

5. Explain how a market adjusts to an increase in the supply of a product. (5–points)

6. Assume the market demand for coffee is initially in equilibrium. Complete the following: (15–points)

   a. Draw a demand and supply diagram to illustrate the initial equilibrium.

   b. Explain the impact on the coffee market if there is an increase in the price of coffee beans.

   c. Graphically illustrate the impact of a price increase of coffee beans on the diagram from (a).